EMPORIA GAZETTE: Tax structure is the problem

The tax structure changes in 2012-13 were passed with the promise they would create private sector jobs, but recent economic reports clearly indicate that hasn’t happened.

Those who have supported the tax system that permits corporations to pay no income taxes report that, indeed, new jobs were created in the last two years. But if we look more closely at the data, Kansas is not doing as well as many other states.

The Kansas Center for Economic growth is a nonpartisan, nonprofit organization that conducts studies of state government policy. A May 14, 2015 post reports that Kansas has created more than 42,000 private sector jobs since the tax changes were implemented in January 2013. That number alone is quite impressive, but Idaho created 38,000 private sector jobs during the same period. However, Idaho has a population of 1.6 million people while Kansas has a population of 2.9 million. By percentage, Idaho’s private sector job growth is 7.5 percent while Kansas’ is 3.8 percent (realprosperityks.com).

This same report, which uses the U.S. Bureau of Labor Statistics data from the period January 2013-March 2015, Kansas trails both the region and the nation in job creation. In the six-state region around Kansas, job growth is 3.9 percent, while the growth rate nationally is 5.2 percent.

Examining median personal income of Kansans shows a similarly disturbing picture. Bureau of Economic Analysis data show personal income growth in Kansas between January 2010 and December 2012 — before the tax changes went into effect — and between January 2013 and December 2014 (after the tax policy went into effect) Kansans’ personal income growth went from 13th nationally to 32nd. Personal income growth during the three years before the tax policy change was 6.5 percent; after implementation of the new tax policy, personal income growth dropped to 3.4 percent (Kansas Center for Economic Growth May 11, 2015).

Let’s also look at how the tax cuts for businesses are having an impact. In a letter to the Gazette published May 18 (“This Is Why”) former Kansas Representative Jim Lowther uses information from the Kansas Department of Revenue to provide evidence that the current tax structure passed by the Legislature in 2012 is not creating jobs.

As Lowther pointed out, of the 333,771 business filers, 53 percent of business filers (176,920) with income up to $25,000 saved an average of $158 in taxes, costing the state $28 million in lost revenue — not nearly enough to create jobs. The job creators would be the 2.274 businesses with the highest incomes (over $500,000 — .068 percent of filers); each saved an average of $38,310, costing the state $87.1 million in revenue.

As the job growth figures above indicate, the amount of job creation is far below predictions. So which businesses are receiving the greatest tax benefits?

Kansas Department of Revenue information indicates that 89 percent of businesses filing for the new tax breaks (297,853) reported income of $50,000 or less and cost the state (us) $105.6 million in tax revenue, while 10.15 percent (35,918) of business filers reported income of more than $50,000 and cost Kansas $205 million in revenue. There is little doubt that the high rollers benefit most from the new tax structure.

When considering income taxes overall, information from the Institute on Taxation and Economic Policy indicates that the poorest 20 percent of Kansans pay 11.1 percent of their income in taxes while the wealthiest 1 percent of Kansans pay only 3.6 percent (www.itep.org/whopays/states/kansas.php).

We have an unfair tax system. More than 300,000 businesses in Kansas are paying no income taxes while not creating jobs as our leaders promised. The tax structure gives these businesses a free ride while creating a fiscal crisis in the state; in turn, public services, our highway system and schools suffer from underfunding.

Our economic growth trails nearby states and the country as a whole. And the more individuals earn, the less one pays in taxes as a percentage of income. This unfair system will only get worse with an increase in the sales tax, and the insidious aspect of sales tax is that we can’t keep track of how much we pay during the year — and it’s more difficult to keep our elected officials accountable for the tax they have imposed on us.

We have a tax structure that has created a financial crisis in the state, and our state leadership must fix the tax structure so that Kansas can provide the services needed for all of its citizens — not just the needs of big business and the wealthy.